Davey’s Doha Delivery

With in-trays still jammed with the Energy Bill and a big announcement on gas expected today, energy policy-makers have had a busy week domestically.  Now to take on the rest of the world….

Ed Davey arrived in Doha today with optimism thin on the ground.  A comprehensive deal seems as remote as ever and his  ability to exercise as much influence as his predecessor in pushing negotiations forward was considered doubtful.

Yet unpacking the UK’s pledge on Climate Finance on his arrival this morning was a good way to start.  Moving first was tactically astute.  Davey is a newcomer to these vast summits and most delegates will barely be familiar with the UK prime minister, let alone energy and climate secretary.  The provision of fast-start finance is supported across the board so there can be no negative spin on the announcement, nor has there been any.  Capturing the headlines in this way gets positive press for the UK as a leader on climate, and will ensure Davey is remembered as someone who delivers.   For a short while at least, Davey will be feted in the desert.

Fracking Needs Local Incentives

Another week, another big call for energy policy.  Following last week’s Energy Bill, it is time for Ed Davey to point the way on the use of unconventional gas supplies.  He will give fracking the green light following the George Osborne’s Autumn Statement which is widely expected to include tax breaks for the companies experimenting with the process.

Fracking is another of the unjust energy solutions that realises possible long term benefits for the nation while concentrating risks within a local population.  Politically it’s the underground equivalent of onshore wind, though for all the thundering protests against wind turbines, a wind farm has yet to cause an earthquake.

There are a number of known unknowns about fracking – how much gas is accessible, how will the process work in a concentrated population –  but one thing is clear, locals will object.  If the technology is to be of any short term interest for the UK therefore, the Chancellor must be creative in his tax package.  The fracking regime must learn lessons from onshore wind.   Specifically the Chancellor could provide for measures that direct cash back into the relevant local community.  This could be partially achieved through the government’s proposal to share business rates with local councils.  However there is a danger that the costs-benefits of fracking would not be properly managed through rates, as companies could open operations in different parts of the country that could disperse rates income far more broadly than the local risks, even after accounting for the local retention.  Also it is not clear how this scheme would work in Wales – a major concern as the Vale of Glamorgan is one of the the areas ear-marked for shale gas exploration.

The clash of planning laws and energy policy has been a torrid battle ground for communities across the UK for many years.  Osborne and Davey need to think creatively to ensure that the right package of support, regulation and locally distributed incentives is delivered to ensure that domestic shale gas becomes a safe and viable addition to our energy mix.

The FT broke the story, but Damian Carrington at the Guardian has put it in clearest context.  The blocking of the appointment of David Kennedy as the new permanent secretary to DECC is an extraordinary intervention by a Prime Minister.  It shows a leader so desperate to undermine the progressive moves by DECC to support green growth that he will resort to naked exercise of his prerogative to veto a transparent recruitment process.

DECC is a department developing legislation with a long term impact for the UK economy in terms of jobs, trade and cost of living.   Energy and climate policy will shape our international negotiations and European relations.  The search for a leader of the department would have been costly and extensive.  Therefore it is nothing short of a scandal that an experienced and popular choice has been rejected by David Cameron on purely political grounds.  Perhaps naively, Cameron is trying to score points in the coalition by showing a shocking contempt for the tax-payer.

The result of Cameron’s hubristic move will be another wasteful recruitment process, another period of listlessness in a key department and confusion for investors expecting certainty and commitment from the UK government following the publication of the Energy Bill.

This ‘hit’ by Cameron should be condemned by those that want our energy and climate policies to be guided by science and reason.  It should also be decried by all those that want our taxes to be spent on finding and retaining talented civil servants who are knowledgeable and effective, rather than playing political football.

In a year when ‘omnishambles’ took all the laurels for new political vocabulary my personal favourite is the ‘energy trilemma’.  How does a government in a country of fully privatised energy sector keep the lights on, keep energy affordable and reduce carbon emissions.  During a successful and popular period at DECC,  Ed Miliband was keenly aware of the trilemma.  Yet he treated it like decorating the spare room – a lot time selecting paints and furniture, but always finding an excuse to avoid putting on the overalls and getting the job done.  This left energy it as one of the key priority issues for the new government to deal with and with the Lib Dems running DECC, it is one of the key tests of the junior coalition partner’s effectiveness in government. After 30 months and through two secretaries of state we have (most of) the solution in the form of the Energy Bill.   I, for one, think it’s a great step forward.

The main controversy over the bill has been the lack of a carbon target for the power sector to 2030.  There are loud voices decrying this omission, and those like me that want to see the UK leading the way on legislation that will help prevent climate change would have certainly preferred to see a tough target in there.

But we need to consider how meaningful is this concession really is?  One of the triumphs of the Milliband period at DECC was the passage of the Climate Change Act which commits the UK to reducing emissions by 80% by 2050 and by 34% by 2030 – based on 1990 baselines.  The means by which the government is to achieve that target is through 5 year carbon budgets.  In May 2011 a ferocious battle was fought over the fourth carbon budget from 2023-27, but the outcome was the government adopting the budget and thereby committing the UK to 50% reductions in net emissions by 2027.  The government now needs to decide whether to follow the recommendation of the committee on climate change to include aviation and shipping in that calculation.  In the context of further consultation on Heathrow expansion, that decision could be equally controversial.

These legally binding commitments provide an overriding context for not only the Energy Bill, but all government policy.  The only way around the Climate Change Act would be repeal, a retrograde step that seems about as likely as a return to the front benches for Nigel Lawson.

It is right to keep the government’s feet to the fire over carbon targets for the power sector.  We want the UK to decarbonise and clean-up its generation rather than relying on offsetting or offshoring emissions in other sectors.  However we should not make the best the enemy of the good.  The Energy Bill represents important and timely progress in solving the energy trilemma and the failure to include the carbon targets does nothing to dilute the overarching commitments that the government has made to reduce carbon emissions dramatically to 2027.  Crucially the Energy Bill has been welcomed by those that will make the investments and create the jobs that will help take the UK to a brighter future.  With their commitment and this improved regulatory programme we can now get on with building it.

There is a depressing lack of imagination to Nick Boles’ proposed solution to our housing problems.  Essentially it boils down to ‘build more‘.  The only nuance in the argument as far as I can tell is that we need to make houses prettier.  This reminds me of the RAC’s argument for building more roads – it’ll be fine, as long as they are well routed.

Both arguments fail to address the fundamental causes of the problems they are trying to solve.  For hundreds of years the UK has had the luxury of being able to keep building to try and solve our problems.  Understandably as our island gets more crowded that solution is losing popularity.  Building takes time and will not usually be possible in the places we need it most – our cities.  We need solutions that address fundamental inequalities of ownership and purchasing power within the UK housing market.  While we remain in a feudal kingdom, we are unlikely to get to grips with those core issues that leave us with the scandal that allows 70% of land to be owned by 1% of the population.  However we can introduce simple tax and incentive arrangements to normalise property prices and encourage those with the means to avoid hoarding our country’s most precious asset.

The biggest demand for housing is in cities so instead of concreting the countryside, let’s encourage a sell-off of flats and houses in our towns.  We could do this through a combination of:

i) Higher taxes on second homes;

ii) Restrictions on foreign ownership;

iii) Better regulation of private rental sector.

These signals would all cause those that would otherwise buy up property to think twice and help free up additional capacity in the existing urban housing stock.  Add a mansion tax and we would start to see the logical decision of those with above average incomes to pour capital into housing begin to change.  By investing instead in pension funds or long-term investments that cash could be put to better use in the real UK economy, rather than blocking millions out of the housing market.

Boles thinks we can simply build our way out of our housing crisis.  By putting this plan forward he is supporting a political demographic that have invested heavily in second or third properties.  But when those homes begin to spoil the view for those very people with spare flats in town, that support will evaporate.  Car owners love more roads, except when they come through their garden.   Boyles has tried two tactics to win over the doubters. This attempt to scare people with threats about their children’s future is a step up from branding doubters “scaremongering Luddites“.   It is still disappointing.  The housing crisis in the UK is worthy of more thoughtful arguments and more progressive ideas.

Tony Blair arrived back in the UK to thrust his well worn stick into another bee’s nest issue over the weekend – this time Europe.  I hope our leaders were listening.  Blair’s cosy relationship with Europe may not have been the handbag swinging that would have pleased everyone, but it is the right way to ensure the UK’s voice was heard in our biggest trading block.   Blair is bringing the right message – closer ties with an EU that has a coherent vision of the future.    I support a stronger position for the UK within the EU.   But in order to persuade a majority,  the EU needs to go further than Blair’s simple message and take three clear steps:

i) Cut and reallocate budgets and head count.

ii) Set out a simple mission statement.

iii) Agree an effective majority rule, or a disputes mechanic.

Despite the diplomatic challenges, Cameron is right to push for a reduced budget, and right to insist that the Commission in particular takes some pain.  The EU institutions have not earned the right to demand an increased budget.  If they want more cash they (or politicians demanding it) have to be more vocal about why and how it improves our lives.  The armchair view is not positive.  And if watching the summits raises ire at the waste, the excess, the numbers of hangers-on, try visiting Brussels to witness the scale of the EU institutions.   If some of the internal EU processes could be removed or simplified, could savings be made, and would outcomes be improved?  The same questions need to be asked of the UNFCCC.

Both the UNFCCC and the EU need an institutional switch of focus to outcomes.  These outcomes should be set out in a simple vision which each citizen can understand.   Blair calls it a ‘grand plan’, I call it a mission statement.   Currently the EU spends 30% of its budget supporting agriculture.  A mission statement would either make that clear or set out different aims.

For me, the EU the mission statement should be focused on the prevention of European conflict, removal of trading barriers, the promotion and protection of human rights and defeating climate change.  Other matters can be left to national governments with some budget being allocated to ensure cooperation on immigration and crime.

If, following a review, the EU mission is being adequately achieved, everyone else can go home.  Equally with the UNFCCC the mission should be to reduce global emissions and incentivise investment in clean energy and energy efficiency.   If that is achieved through annual summits and processes that no-one understands, great.  If  it isn’t, then they need to rethink and refocus on the mission.    The problem at the moment is that too many people have invested too much of their careers in the future of the processes and are therefore not the best people to decide on how to bring the focus back on the outcomes.

The overriding objective for both the EU and the UNFCCC is to deliver a better world for citizens.  Every leader, employee and process needs to be completely focused on that outcome.   If Cameron, Merkel, Hedegaard or Figueres could come out of each summit and state how they have improved our lives no one would question the value.

Is it possible for diplomacy to work in this way?  Would there inevitably be disagreements which would block the path?  We need a dispute mechanic in the EU and UNFCCC that allows decisions to move forward in furtherance of the mission even when people disagree.  The default of everyone coming back to try again is just not acceptable, and builds expense and waste into these organisations.

Blair has been to the summits, sat at the tables and done the deals.  It is right therefore that he is being listened to.  His call for a grand plan is timely but it needs to go further to demand budget cuts and a focus on outcomes over process.  These are key reforms that could help the EU and UNFCCC find a place in citizen’s hearts.

Trying to thrash out a climate deal in a city built on oil and gas is like debating drugs policy in Afghanistan.   That is; a good idea.   The sight of a few LNG vessels pulling away to deliver vital gas supplies around the developed world should bring a touch of realism to proceedings.  But there is unlikely to be any day-dreaming of grandstanding this year in any case.  Europe has made clear its intention not to commit to greater ambition without support and Australia has already claimed the  Issaka the Otter award for honourably taking part with their 0.5% commitment.   Yet I believe there is room for optimism.  Could this be where progress made at recent summits accelerates?  Could this be where there tanker turns?  Here are my top three hopes for the next two weeks:

1. Reform of the CDM will come to the top of the agenda.  CDM is a great UNFCCC success story, yet CERs are languishing at €0.70.  This is bad news for investment in the developing world and bad news for international cap and trade markets.  The CDM Policy Dialogue has produced some exceptional recommendations to reform the mechanism.   Their report reads like a manifesto for reform.  Let’s see if it can galvanise the delegates into meaningful action to build a mechanism fit for the next phase of climate action.

2.  China’s will take its position as a climate  leader.  China is moving quickly and decisively towards a cleaner economy.  Encouraging China’s nascent trading schemes and clean energy initiatives by encouraging China to lead on key issues could be a positive outcome from Doha.  One practical step could be to amend the rules to allow CERs produced domestically in China to be used in their domestic scheme.  It’s a logical step, but will challenge the conference’s appetite to challenge the fundamentals of the Kyoto settlement.  Let’s not get hung up on whether China has reduction targets.

3.  Hot air over hot air.  It was a poor decision to frame the rules to allow for limitless amounts of ‘hot air’ (unused emissions credits) to be carried forward to the next commitment phase.  A deal needs to be struck on how much can be ‘banked’ and how much will need to be given up.  I’m optimistic that the delegates can get down to the numbers and come up with an agreement on this – not one that suits everyone, but something that will allow us to move forward.